Summer shock from manufacturers amid slowing export growth

Manufacturing delivered an unpleasant surprise today as the latest survey of activity in the sector unexpectedly dropped to a 14-month low on the back of weaker exports and slowing new orders.

The Markit/CIPS Purchasing Managers’ Index posted a reading of 52.5 for August, still above the 50 mark that separates expansion from contraction, but down sharply from 55.4 in July and below analysts’ expectations of 55.

Growth in new export orders slowed to a five-month low with David Noble of CIPS highlighting a “backdrop of market uncertainty and increasing geo-political tensions”.

The manufacturer’s organisation EEF today downgraded its 2014 growth forecast from 3.4% to 3.3%, citing a slowdown in orders and output in the three months to August.

The main manufacturing survey index for the eurozone also hit a 13-month low in August, according to Markit, ahead of Thursday’s meeting of the European Central Bank board where analysts expect the bank to prepare the ground for its own monetary stimulus programme.

Data from the Bank of England also pointed to a continued slowdown of the UK mortgage market following April’s regulatory rule tightening, with the number of approvals for new home purchase in July declining to 66,559, from 67,196 in June. Approvals are now running 13% below January’s peak.

“All in all, the data is pointing to a slowing in the rate of economic growth, which plays into the hands of the more dovish members of the bank of England’s monetary policy committee,” said James Knightley of ING.

He added that it was now looking more likely that the central bank would impose its first interest rate rise next February, rather than this autumn.

Net lending to firms inched up by £1.2 billion in July, but small business lending contracted again, declining by £400 million. Total household borrowing rose by £3.4 billion.

Another manufacturing shock came from the Far East this morning with the HSBC/Markit PMI survey for China dropping to 50.2 in August, only just in positive territory.

Analysts said the dip could result in more policy easing from the authorities in Beijing.